Paper on PnL of a trend-following strategy

The paper derives an exact formula that connects the PnL of a trend-following strat (well defined) to the autocorrelation function and drift of the return process. The formula shows that profitability comes directly from positive autocorrelation of returns and from the square of long term drift.

Tests in the paper confirm that long-term trends dominate even in mean reverting markets, and that longer lookbacks amplify exposure to drift. This allows targeting assets with steady drifts, and stacking such systems onto long-only portfolios improves overall returns without cutting core positions.

Paper:
https://lnkd.in/eSMtA_5Q

Authors:
Artur Sepp
Vladimir Lucic

Code: https://lnkd.in/ehE_fri6